Chemical-chase Bank Merger Plays Like Rerun

A 1991 Merger Involving Chemical Banking Corp. Suggests The Combined Banks Are Likely To Save More Money Than They Are Now Projecting.

September 3, 1995|By Wall Street Journal

NEW YORK — When Chemical Banking Corp. agreed to merge with Manufacturers Hanover Corp. in 1991, Chemical Chairman Walter Shipley was asked whether he or Manufacturers Hanover's chairman was the first to suggest the combination. Shipley declined to answer, asserting that the two New York banks came together due to ''divine guidance.''

Last week, when Shipley and the chairman of Chase Manhattan Corp. were asked the same question about their $10 billion merger, Shipley once again demurred, this time using a slightly different phrase: ''divine intervention.''

The parallels between the two transactions are striking. Both are mergers between old-line ''money center'' banks, and both are driven by the promise of massive cost savings. And both were announced on Mondays during the summer.

Given the parallels, the history of the first merger reveals much about the probable course of the second.

''This is a bigger swallow, but it's the same management team at Chemical, and they're likely to do it in the same way,'' said David Partridge, a banking consultant with New York-based Towers Perrin.

One of the biggest lessons from the earlier union: The combined banks are likely to be able to save more than the $1.5 billion annually they are now projecting. With Chemical and Manufacturers, the initial target was $650 million a year, but the companies ultimately saved more than $750 million annually.

While the Chemical-Manufacturers merger is often held up as the ideal bank merger, not everything went according to plan. The biggest problems were in integrating branch operations, such as deciding which offices to close, and in combining back-office systems.

One reflection of the problems is that the costs of the merger also were greater than anticipated. In October 1993, Chemical announced that it was taking an unanticipated $115 million charge related to branch closings.

Shipley believes his previous experience will enable his management team to avoid many of the earlier mistakes, and there is already some evidence of a somewhat different approach, particularly when it comes to appointing top executives.

In the earlier merger, Chemical was criticized for being so eager to treat executives from each company equally and to preserve corporate harmony that it was slow to make cuts. ''It's one of theirs, one of ours, one of theirs, one of ours,'' a Manufacturers executive told Business Week at the time.

''It took far too long,'' said Laura Jean Stuart of Stuart Research, a Cambridge, Mass., consulting firm. ''People should not have been in limbo for that much time.''

The decision making appears to be more rapid this time. The reason is simple: While the Manufacturers transaction was truly a merger of equals, in the new transaction Chemical is clearly the dominant institution.

In fact, the top 22 jobs in the merged companies already have been assigned, and Chemical officials will get 13 of them.

Even so, there are certain to be difficult decisions. One tough-to-call example involves the leadership of the credit card business, which in the combined company will be the nation's fourth largest.

The two executive vice presidents who run the businesses now, Charles Walsh at Chemical and John Ward at Chase, are both highly regarded, and it is not clear who will survive.

One inevitable result of layoffs and branch closings is adverse public relations. In the earlier merger, Chemical and Manufacturers assuaged concerns that low-income neighborhoods would suffer from the merger by promising to make loans in poor neighborhoods. It is likely to have to do the same once again.

The Rev. Jesse Jackson has already warned that he will attempt to block the new merger because of the layoffs and his fear that lending to poor neighborhoods would be cut.

The biggest challenge facing Chemical and Chase is the need to merge without causing so much inconvenience to customers that they decide to switch banks.

Policy decisions also have to be made. For example, Chemical now pays $5 to customers who have to wait for more than seven minutes to see a teller; Chase doesn't have such a program.